Spirit Airlines Shareholders Should Take The JetBlue Deal. You Should Hope They Don’t.

Spirit Airlines shareholders vote on Thursday to decide whether to accept Frontier’s offer to acquire the airline, or reject it – meaning they prefer JetBlue’s richer offer that likely faces greater anti-trust scrutiny.

JetBlue’s proposed deal to acquire Spirit Airlines is better for Spirit shareholders than Frontier’s is. Spirit management supports the Frontier deal, and it will probably be approved. JetBlue is offering 40% more for Spirit Airlines than Frontier is. With Spirit’s shares falling to slightly below Frontier’s offer, the market thinks the successful suitor will be Frontier, not JetBlue.

However a Frontier deal for Spirit is actually better for consumers, even though JetBlue’s product is better than the one offered by either airline.

Why Spirit shareholders should take the JetBlue offer:
I>If you believe the deal won’t close for anti-trust reasons, JetBlue is offering a $400 million breakup fee. Spirit shareholders can take the $400 million and they will still own their shares, and they can still sell the company.

  • Spirit Airlines says the combination of Spirit and Frontier will make their shares worth $50 each in the future. The only way that could happen is.. inflation. But if the claim were true then Spirit’s board should be demanding more than $25 per share to sell!
  • Spirit did the Frontier deal first. They have board members tied to Frontier’s Chairman Bill Franke, who used to control Spirit. But if shareholders vote for this, that’s on them.

    However institutional shareholders often take the bureaucratic path of least resistance, and independent advisory firms have signed off on the Frontier deal for Spirit. They did this before JetBlue raised the breakup fee to $400 million, with it being ‘too late’ to revisit days before the shareholder vote scheduled for tomorrow.

    The good news is that a Spirit-Frontier deal is better for air travel consumers, even if it is worse for air travel product.

    • Frontier offers a worse product than Spirit, without a “Big Front Seat” and without wifi.

    • JetBlue offers a better product with more legroom, seat back entertainment, and free snacks. JetBlue has said they plan to retrofit Spirit’s planes to match their own cabins. (Spirit employees would also make more as part of JetBlue than as part of Frontier – yet union boss Sara Nelson sells out her flight attendants, preferring a Frontier deal since she keeps control of the union that way.)

    • But Spirit + Frontier means far more planes flying under an ultra low cost carrier model. That’s far more capacity charging lower fares, driving down the fares that United, American and Delta can charge.

    Leaving aside specific airports and routes, and a top level JetBlue acquiring Spirit means more planes with a better product but higher fares, and Frontier acquiring Spirit means more planes flying at lower fares that benefits not just passengers flying Frontier/Spirit but passengers flying other airlines too because they’re likely to be paying less for tickets on other airlines as a result.

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